Former German finance minister Peer Steinbrueck will be the Social Democrat (SPD) candidate for chancellor in next year's federal election, taking on conservative incumbent Angela Merkel, Reuters reported citing two SPD sources.

The sources said the other leading SPD candidates to challenge Merkel, party leader Sigmar Gabriel and former foreign minister Frank-Walter Steinmeier, had agreed to make way for Steinbrueck, who led Germany's response to the global financial crisis in the "grand coalition" that ruled in Berlin between 2005 and 2009.

"We can confirm the report," one source told Reuters after Germany's top-selling Bild newspaper said on its website that the SPD has settled on Steinbrueck.

The executive committee of the SPD was due to hold a teleconference later on Friday, Sept 28, where Gabriel was expected to inform party leaders of the plan.